Mandatory Mediation: Here’s How it’s Done – The Detroit Example

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By Donald L. Swanson

Sometimes, the old ways aren’t enough.  Sometimes, a little creativity (or lots of it) is needed to address the task at hand.

You’ve got to hand it to the Bankruptcy Judge in the Detroit case: Steven Rhodes.  He knew it when he saw it: the old ways would not be enough in the Detroit case . . . and a lot of creativity would be needed.  So , he jumps in with both feet: he refers all claims and collective bargaining agreements to mediation—right up front.  Pretty amazing!  And courageous.

The City of Detroit files its voluntary Chapter 9 Petition on July 18, 2013—Case No. 13-53846 in the Eastern District of Michigan.

On August 13, 2013, Judge Rhodes issues his “Mediation Order” (Doc. 322) that includes the following provisions:

–“After consultation with the parties involved, the Court may order the parties to engage in any mediation that the Court refers in this case.

–“With his consent, Chief District Judge Gerald Rosen . . . is appointed to serve as judicial mediator in this case for purposes of facilitative mediation.  The judicial mediator is authorized to enter any order necessary for the facilitation of mediation proceedings.”

–“Chief Judge Rosen may, in his discretion, direct the parties to engage in facilitative mediation, with such other mediators, judicial or non-judicial, as he may designate.”

–“[T]he applicability of E.D. Mich. LBR 7016-2 is suspended in this case to allow the foregoing alternative mediation process.”

Then, on August 16, 2013, Judge Rhodes issues a related Order (Doc. 333) that out-does the prior one for creativity, courage, sweeping effect . . . and brevity.  Here is the entire text of the order (a photo of this Order appears above):

First Order Referring Matters to Facilitative Mediation

Pursuant to this Court’s Mediation Order entered on August 13, 2013, the following matters are hereby referred to Chief District Judge Gerald Rosen for facilitative mediation:

1.  The treatment of the claims of the various creditor classes in a plan of adjustment.

2.  The negotiation and renegotiation of collective bargaining agreements.

It is so ordered.”

Wow!  Sorry to repeat myself.  But these Orders are amazing . . . and creative . . . and courageous acts.  And the passage of time and events show the extent and depth of the wisdom behind them.

The Judicial Mediator, Gerald Rosen, then promptly issues his own Order requiring “Certain Parties to Appear for First Mediation Session” (Doc. 334).  Such Order is directed to twelve parties: two City of Detroit authorities, two retirement systems, six unions and two State of Michigan authorities.

On August 20, 2013, the U.S. District Court for Eastern Michigan announces the “Detroit Chapter 9 Mediation Team” (Doc. 542) that, in addition to himself, consists of:

–a U.S. District Judge from the Eastern District of Michigan,

–a Bankruptcy Judge from Oregon, who served as mediator in three California municipal bankruptcies,

–a U.S. District Judge in Colorado, who formerly lived in Detroit,

–a former Bankruptcy and U.S. District Judge-turned-private-mediator, who mediated a California municipal bankruptcy, and

–a private practice attorney / mediator, who is a life-long Detroit resident and who has mediated over 150 cases.

The rest is history.

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RESPONSES RECEIVED:

“Don–

First off this is not mandatory mediation.  Several matters were referred to mediation and urged at best.  That said, is there such thing as ‘mandatory’ mediation?  It kind of defeats the purpose and concept of mediation.  Once it becomes mandatory it causes parties to protest participation.  And since mediation is  not mandatory, opting out is always an option. Once it is truly mandatory, then it is not mediation at all is it?”

Scott later continues:

“While I don’t disagree that pushing parties to mediation may have the desired result, if we inch away from mediation being a voluntary process then the point of mediation is watered down significantly. Parties are entitled to their day in court-a process filled with mandatory everything:). Parties do not sign up to be forced into mediation however. And even if the ends seem to justify the means it does not make it right. Mediation is a process to attempt to effectuate settlement. It is not codified and to impose it on parties is wrong in my opinion.”

Scott Y. Stuart, Esq., Founder & Co-CEO, Esquify.com

“There is mandatory mediation in Federal courts in several ‎Circuits and Districts. Typically, parties can seek exemption from same for “good cause” — eg, been there/done that with no success and nothing’s changed. Doesn’t always result in exemption. As with most things in our field, facts and circumstances driven. And sometimes simply the judge’s desire to get the parties to narrow the issues in a complex, multi-party case if settlement itself cannot or is unlikely to be reached. It does not follow in all situations that mandatory mediation “is not mediation at all.” It by definition is an imposed predicate to unlocking the courthouse door. As such, parties often “fall into place.” Particularly if all have faith in the chosen mediator. And sometimes it does result in settlement or short of same narrowing of issues of help to both the court and the parties.”

 Melnik, Selinda

“Again, Don has provided food for thought about mandatory mediation. Local rules provide for it, our model rules permits it, and, as in Detroit, bankruptcy courts have ordered it. A purest could say that a forced start alters the voluntary character of the process. Those in favor of mandatory mediation say it allows the voluntary process to begin. While I was on the bench our court resisted bar initiatives to impose mandatory mediation. The impetus came from the consumer mortgage crisis and the desire of the chapter 13 bar to bring mortgagees to the table. The concept also had adherents in the chapter 11 bar. Our judges rejected the idea because mediation is voluntary by definition and should not be forced. We encouraged voluntary mediation and recommended it without a heavy hand. Consequently, many cases went to mediation. Now that I am in the business of mediation I see things differently. I admit economics is a factor. Judicial references are a great source of business, but there is more to my change of heart than a desire for work. Sometimes parties need a push in the right direction; and lawyers often look to the court to move their own clients towards a settlement. That said, I still believe the mandatory aspect should be limited to the initiation of the process. There should be no requirement that parties negotiate in good faith and no requirement that the mediator report anything beyond success or failure. A greater reporting mandate, like a determination of bad faith, would violate confidentiality and put the mediator in the shadow of the presiding judge. The consequences of this sort of intrusion came to light in the Reynolds case in SDNY. There the bankruptcy court held that a refusal to make an offer was bad faith; the district court determined otherwise and reversed. Mediation should be voluntary. A shove from the court may be appropriate as long as the process itself remains free of judicial interference.”

Louis H. KornreichOf Counsel Attorney, Bernstein Shur

“Wow, we have really picked up the pace. Don thanks for the energy. You are  creating excellent conversation”

Jerry M. Markowitz, Shareholder,  MARKOWITZ RINGEL TRUSTY + HARTOG

“It was an amazing job by all parties involved, including the foundations and the state. A truly masterful collaboration of at other times sworn enemies.”

Zena Zumeta, President of the Mediation Training & Consultation Institute

“Thank you for the article, Donald. I completely agree. Notice that he did not order the matter to “Evaluative Mediation.”

Mark B. Baer, Pasadena Family Lawyer an Mediator

“Excellent article and example of the power of “Facilitative Mediation.” I echo Mark Baer’s comments.”

Craig Barton, Ph.D., Trained Mediator

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